I was recently checking the Canadian banks stocks and I saw this sign in front of all of them: ON SALE. It seems that there is a good rebate going on all of them. With my Smith Manoeuvre in place, I am buying on a monthly basis shares of dividend funds. This type of fund includes generally a good part of bank stocks. The fund is dropping in value right now, which is perfect. I can then buy more shares for the same price!
The bank stocks are dropping because of two major factors. The first one is the panic that is starting on all markets. Everybody is getting nervous and cashing their profit. The second thing is the subprime lender crisis. Subprime lenders are financial institutions that provide mortgage to higher risk clients (above norm TDSR or with bad credit behaviours). This specific market is slowing down as many people could not afford their mortgage payment (duh!) and therefore, financial institutions are loosing money.
The market fears that the crisis will go up north (in
So this is why Canadian banks are taking a beating right now. As of beginning of August, on average, they have dropped by more than 11% since last April. This seems to be a good discount to me. Economic is strong in
My favourite picks for bank stocks:
I have two stocks I would buy presently. I already have National Bank (NA) in my portfolio and I think it is a good timing to buy some more. They are on pace with their objective so far and they have several departments that are doing pretty well so far. It is definitely a good occasion.
My second pick would be Band of Montreal (BMO), especially because of its high dividend yield. As of yesterday morning, it was showing at 4,4%. It is a great protection against inflation considering the fact that the stock has a really good chance to rise in the following months. It went from $70 to $61 in a span of a month.
Iâ€™ll be looking at stock options on both of them. It will require less cash and I still have a pretty good chance to make a few bucks out of it!
However, I would still wait couple of months if you plan on invest massively into Canadian banks. The main reason is history: back in 1998, when Long-Term Capital Management declared bankruptcy, banks dropped on average by 46%. So maybe there is still more rebate to be announced in the following months!
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